Priceline: OpenTable Buy Expands Market; Locals Yelp, Zillow Rise

By Tiernan Ray

Shares of restaurant reservations purveyor OpenTable (OPEN) are up $33.01, or 47%, at $103.44, after online travel firm Priceline (PCLN) this morning said it would acquire the former for $103 per share, or $2.6 billion, in cash.

The deal is to take place in Q3, via a tender offer, and was approved by both companies’ boards of directors.

Shares of Priceline are down $33.94, or almost 3%, at $1,192.06, on the deal. Given the focus on local information with OpenTable, shares of another local listings provider, Yelp (YELP), are surging as well, up $8.48, or 13%, at $74.32. But it’s not universal: shares of local listings purveyor ReachLocal (RLOC) are unchanged at $6.34.

Bulls seem fairly pleased with Priceline’s actions, while even bears on OpenTable’s stock appreciate the rationale for the buy.

Piper Jaffray’s Michael Olson reiterates an Overweight rating on Priceline shares, and a $1,485 price target, writing the deal is “the acquisition of OpenTable is another step in what will be a continued extension of Priceline into related categories.”

“Priceline has more aggressively moved into vacation rentals in recent months, the company is now adding restaurant reservations; other logical categories would include events, attractions and ride-sharing.”

Olson likes the “synergy” between the two in the need for OpenTable to expand internationally, and the position Priceline already has overseas:

OpenTable has long had a strong domestic presence, but has struggled internationally. Priceline has dominated international markets and will be able to leverage international expertise and cross-promotion strategies to extend OpenTable’s reach. Both companies are mobile booking innovators and we expect the combination of their efforts, to date, in mobile will drive further enhancements.

The valuation’s not bad on the deal, he thinks:

10x CY14 estimated OpenTable revenue. We believe this is a reasonable valuation, with private companies in adjacent markets, like Uber, Airbnb and lyft being valued at >20x revenue. For reference, in 2014, based on our current estimates, OpenTable would represent 2-3% of Priceline revenue and EBITDA.

Barclays‘s Christopher Merwin, who follows Opentable and rates it Equal Weight, with a $68 price target, writes today that the deal is “evidence of increasing demand for local marketplaces like OpenTable that connect merchants and consumers” and that the large travel brokers are “looking to expand more broadly into local to become full-service platforms for travelers looking to discover all types of local businesses.”

We believe OpenTable has a treasure trove of data that could be used to better target consumers and improve conversion. In addition, OpenTable’s planned rollout of mobile payments in 20 cities across the U.S. later this year was also a likely catalyst behind the deal, in our view. We expect mobile payments will help improve engagement with the platform, driving repeat usage and perhaps ultimately creating a material transaction-based revenue stream in the future.

Merwin advises, “We would be buyers of companies that 1) are market leaders in a certain vertical within the broader local space, 2) horizontal players that are closing the loop between merchants and consumers,’ including Yelp and Zillow (Z), both of which he rates Overweight.

Zillow stock is up $4.34, or almost 4%, at $124.44.

J.P. Morgan’s Doug Anmuth reiterates an Overweight rating on Priceline, writing the move is a positive sign of the willingness for Priceline to expand its addressable market:

We view the move as a positive for Priceline and as a sign of new CEO Darren Huston’s willingness to expand the company’s total addressable market through close adjacent opportunities, even as the core business continues to have strong growth. We believe there are strategic similarities between online bookings for travel and for restaurants, especially in building supply from smaller, long-tail business owners and in matching that supply to demand from a common customer base (travelers are often high-value dining customers). We expect Priceline will be able to bring more innovation to OpenTable, especially in mobile, and given Priceline’s strong global presence, we expect international expansion is a top priority post-deal, especially in Europe. We are encouraged that the acquisition puts Priceline into the attractive and underpenetrated local marketplace, and that the deal will be done almost entirely in cash.

He thinks the deal creates possible pressure on TripAdvisor (TRIP), and opens up deal prospects for other local providers, but doesn’t name any specifically:

We note that the acquisition likely creates some competitive pressure—especially in Europe—for TripAdvisor, which recently acquired La Fourchette, but it validates the attractiveness of the opportunity, and we remain positive on TripAdvisor’s push to monetize the other 50% of its traffic. Additionally, we believe the acquisition will likely have a positive impact on the share prices of other SMid-cap Internet companies given further M&A potential.

RBC Capital Markets’s Rohit Kulkarni reiterates a Sector Perform rating on shares of OpenTable, and a $79 price target, writing that the deal advances OpenTable’s ability to spend to expand its overseas markets:

Opentable currently operates in U.K., France and Germany, and has been in “investment mode” overseas for past 5+ years. As part of Priceline group, we believe Opentable will have the flexibility to operate independently yet benefit from stepping up investments over the near-term as a non-public entity; 2) From a competitive standpoint, we believe Opentable has a “monopolistic” market share, particularly in N.America, but we have come across a series of private / local players in Europe (e.g. La Fourcette- acquired by Tripadvisor and Bookatable/Live Bookings) and Japan (Tabelog – operated by Kakaku.com).

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.